Panel chief: Hike taxes, cut social security benefits

Japan urgently needs social security reform to reduce its social security costs, including medical care expenditures and pension payments, the head of a panel advising the finance minister suggested in a recent interview.

Hiroshi Yoshikawa, chairman of the Fiscal System Council and a professor at the University of Tokyo, described the planned consumption tax hike from 5 percent to 8 percent next April as the first step to restoring fiscal health and improving social security, adding that the government should raise the rate to 10 percent in October 2015, as planned.

But Yoshikawa said, “Even if the tax is raised to 10 percent, it will be impossible for Japan to achieve its target of a primary budget surplus by fiscal 2020.” Japan’s social security expenditures have increased by ¥1 trillion each fiscal year due to the aging society and are now a major burden on the country’s finances, he noted.

“Although measures to prevent the economy from stalling are necessary, the government may lose sight of its real goal if it becomes excessively cautious,” Yoshikawa said.

He said that once the planned tax hikes are implemented, the government should reduce social security benefits, not by simply cutting them but by making them more efficient.

“Talks should begin soon on alternatives, such as raising the pensionable age or reviewing out-of-pocket medical costs borne by the individual, without considering them to be taboo,” he said.

Asked about whether Japan should introduce a lower tax on some items, such as food, Yoshikawa said he would oppose such a measure if the tax rose to 10 percent.

“In light of the situation in Europe, which has introduced a reduced rate on some items, talks are likely to get bogged down over which items to choose,” he said.

“It would be preferable to provide low-income taxpayers with benefits equivalent to the increased amount on their food bills,” he said.